Negative Oil Has Hamm’s Continental Invoking ‘Act of God’ Clause

(Bloomberg) -- Shale explorer Continental Resources Inc. told at least one refiner it couldn’t make an oil delivery after the global pandemic sent prices plunging, a move refiners called the “height of hypocrisy” following billionaire founder Harold Hamm’s calls to limit foreign imports.

Oklahoma City-based Continental on Tuesday declared force majeure on at least one of its contracts to deliver oil to a fuel producer, according to a document seen by Bloomberg, a day after crude futures settled at a negative per-barrel price for the first time in history. In the document, Continental said it couldn’t have foreseen the dramatic rout caused by the coronavirus outbreak, and that selling oil at negative prices constitutes waste.

A Continental spokeswoman said the company continues to honor commitments and is working closely with purchasers. “Certainly this pandemic has brought about conditions under which force majeure applies,” the company said in an emailed statement. Force majeure clauses are typically invoked after hurricanes and other so-called “acts of God” that prevent companies from fulfilling contracts. Such claims have proliferated as viral lockdowns around the world gutted energy demand and economic activity.

Continental also asserts the contracts to deliver crude were based on both a positive price and the ability to produce and sell oil without creating economic waste. The current situation is commercially impractical, the company says in the document.

Continental is shutting in most of its shale production in the Bakken oil field in North Dakota, Reuters reported late Thursday. The company typically hasn’t hedged its crude production in recent years, leaving it more exposed to market volatility. Before this week’s collapse, Continental had already planned on cutting output by 30%.

Hamm, who owns roughly 78% of the company, has been an active voice in Washington since crude prices suffered the most dramatic collapse in decades. He’s said Saudi Arabia and Russia are guilty of “illegal” dumping and has called on the U.S. to impose tariffs on their cargoes.

Called Out

Refiners equipped to process heavier, foreign grades of crude have lobbied against any move to impede Saudi imports.

“It is the height of hypocrisy for a company to choose not to honor its contracts to supply domestic crude to refineries while also demanding the administration impose restrictions on foreign crude,” the American Fuel and Petrochemical Manufacturers, a trade group representing refiners, said in an email.

Most recently, Continental filed a complaint with the Chicago Mercantile Exchange over Monday’s price collapse and is seeking an investigation from the Commodity Futures Trading Commission.

The rapid plunge earlier in the week -- with the May contract for West Texas Intermediate falling some $40 in a 22-minute time span -- “strongly raises the suspicion of market manipulation or a flawed new computer model,” Continental said Tuesday. CME Group Inc. called Continental’s allegations “factually inaccurate.”

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